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BOARD OF TRADE OF CHICAGO v. CFTC

April 6, 1993

BOARD OF TRADE OF THE CITY OF CHICAGO, Plaintiff,
v.
COMMODITY FUTURES TRADING COMMISSION, Defendant.


MAROVICH


The opinion of the court was delivered by: GEORGE M. MAROVICH

Plaintiff Board of Trade of the City of Chicago ("CBOT") brought this action for declaratory judgment and injunctive relief against the Commodity Futures Trading Commission ("CFTC"). CBOT seeks review of a CFTC decision which vacated a CBOT disciplinary action against a former CBOT member. Additionally, CBOT seeks an order declaring (1) that CFTC exceeded its statutory authority in holding that CBOT did not have disciplinary jurisdiction over the former member; and (2) that CBOT's efforts to impose sanctions upon its former member were in accordance with the policies of the Commodity Exchange Act ("CEA"), codified at 7 U.S.C. §§ 1-26 (1988 and Supp. III 1991). CBOT and CFTC have filed cross-motions for summary judgment. For the following reasons, we grant CFTC's motion for summary judgment and deny CBOT's motion.

 SUMMARY JUDGMENT AND LOCAL RULE 12

 Before we address the background and issues of this case, we must first address a threshold issue of procedure. When analyzing a motion for summary judgment, we engage in a two-step process. We first decide whether there exists a genuine issue of material fact. Only then do we decide whether the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). When analyzing the facts presented, a court must view the record and all inferences to be drawn from it in a light most favorable to the non-movant. Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir. 1991). Cross-motions for summary judgment present a more difficult task because we must consider two separate factual scenarios. As applied to this case, we must in the first instance construe the facts in the light most favorable to CBOT; in the second instance, we must construe the facts in a light most favorable to CFTC. See Phaup v. Pepsi-Cola General Bottlers, Inc., 761 F. Supp. 555, 557 n.5 (N.D. Ill. 1991).

 In this district, Local Rules 12(m) and 12(n) require the parties moving for and opposing summary judgment under Rule 56 of the Federal Rules of Civil Procedure to state the material facts of the case. Local Rule 12(m) requires the moving party to provide a supporting memorandum of law, including a statement of material facts as to which that party contends there is no genuine issue and which entitles that party to summary judgment as a matter of law. The movant is required to set forth each fact in a short-numbered paragraph and include a specific reference to the record to support that fact.

 Local Rule 12(n) requires the party opposing summary judgment to submit a supporting memorandum of law, including a supporting statement responding to each numbered paragraph in the movant's 12(m) statement of material facts. The party opposing summary judgment must state any disagreement to the material facts set forth by the moving party. If the party opposing summary judgment fails to state any disagreement with the facts set forth in the movant's statement, those facts are deemed admitted. These requirements have been strictly enforced in this district; see Pasant v. Jackson Nat'l Life Ins. Co., 768 F. Supp. 661, 663 (N.D. Ill. 1991); Davis v. Frapolly, 756 F. Supp. 1065, 1069-70 (N.D. Ill. 1991), and in the Court of Appeals. See Brown v. United States, 976 F.2d 1104, 1108 (7th Cir. 1992); Schulz v. Serfilco, Ltd., 965 F.2d 516, 519 (7th Cir. 1992); Capitol Converting Equip., Inc. v. LEP Transp., Inc., 965 F.2d 391, 394-95 (7th Cir. 1992); Bell, Boyd and Lloyd v. Tapy, 896 F.2d 1101, 1103 (7th Cir. 1990).

 In the present case, CBOT's motion for summary judgment includes a statement of material facts that, with minor exception, *fn1" complies with Local Rule 12(m). CFTC responded with a 12(n) statement contesting certain facts set forth in CBOT's motion and agreeing to others. Additionally, CFTC included a 12(m) statement setting forth facts for the purposes of its motion for summary judgment. CBOT did not submit a 12(n) statement in response to CFTC's 12(m) statement. The following statement of facts is drawn from a careful consideration of the parties' 12(m) and 12(n) statements. Factual disagreements are noted.

 FACTUAL BACKGROUND

 CBOT is a federally regulated exchange which provides a market for trading futures and options on futures. The CEA requires CBOT to police its market and discipline members who violate the CBOT's Rules and Regulations. 7 U.S.C. § 7a(8) (1988 and Supp. III 1991). "Any such [disciplinary] action shall be taken solely in accordance with the rules of that exchange." 7 U.S.C. § 12c(1)(A) (1988). However, the exchange rules themselves must meet the approval of CFTC. 7 U.S.C. § 7a(8) (1988 and Supp. III 1991). If the CFTC disapproves a rule, it cannot be enforced. Id.

 CFTC is a federal agency that administers the CEA. 7 U.S.C. § 4a (1988). CFTC is authorized to review appeals from disciplinary actions taken by exchanges such as CBOT. 7 U.S.C. § 12c (1988). Subject to judicial review, CFTC may affirm, modify, set aside, or remand an exchange disciplinary action based upon whether that action was in accordance with the policies of the CEA. Id.

 On February 9, 1988, a federal grand jury indicted Thompson B. Sanders ("Sanders"), a former CBOT member, on charges of wire fraud, interstate transportation of stolen property, and various violations of the CEA. The indictment specifically alleged that, during 1986, Sanders participated in a scheme whereby unauthorized persons were allowed access to the CBOT trading floor in order to conduct trades on Sanders' behalf. Profitable trades were placed in Sanders' account through non-competitive accommodation trades while unprofitable trades could not be traced to Sanders because of the unauthorized traders' disguises and false identities. The scheme allowed Sanders to participate in futures contract transactions without risk of loss. On September 14, 1988, a jury convicted Sanders on all counts.

 In early October 1986, during the course of the scheme, CBOT began an investigation into two of the fraudulent transactions. Later that month, federal officials also began to investigate transactions associated with the scheme.

 On December 23, 1987, Sanders sold his CBOT membership. Following Sanders' indictment in February of 1988, CBOT initiated disciplinary proceedings against Sanders. On February 24, 1989, CBOT determined that Sanders committed fifteen violations of CBOT Rules and Regulations. CBOT permanently expelled Sanders and demanded that he pay a fine of $ 1,125,000 fine for the fifteen violations. *fn2"

 Sanders appealed the CBOT disciplinary action to CFTC. In his appeal, Sanders contended that he was not subject to CBOT's disciplinary jurisdiction at the time CBOT's disciplinary proceedings were initiated against him. Consequently, he sought to have the disciplinary action and sanctions vacated. The CFTC examined CBOT Rules 250.01 and 251.01 *fn3" and concluded that CBOT did not have disciplinary jurisdiction beyond the date when CBOT allowed Sanders to sell his CBOT membership. Since no other CBOT rule extended CBOT's disciplinary jurisdiction, and all disciplinary action must be in accordance with ...


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